Flash comment: Latvia - August 8, 2018
Annual inflation stood at 2.6% in July

Annual inflation rate in July was 2.6%, a tad slower than in June. Although price growth differed across various categories, overall price growth of goods and services remained moderate and similar to that in June. Goods’ prices grew by 2.4% on annual basis while service prices – by 3.2%. 

The main drivers of annual inflation in July were transport and housing goods’ and service prices as well as prices of alcohol and tobacco products. Together these three categories accounted from more than four fifths of the annual inflation in July. 

In the transport category, fuel prices contributed the most to the price increase. Although fuel prices remained largely flat on monthly basis in July, their contribution to annual inflation increased. However, it mainly owes to the base effect as fuel prices were lower July last year. 

Natural gas tariffs for households increased as of July 1, raising the price growth rate in the housing category. In July, the price of natural gas was around 11% higher compared to June and 9% higher compared to July last year. Natural gas price depends on the price of oil products, thus higher prices reflect the recent oil price increase. However, a decrease of electricity prices limited an even faster price growth in the housing category. As of July 1, the fixed part of the mandatory procurement component was reduced. As a result, electricity prices declined by around 2.5% on both monthly and annual basis. 

Also, a hike in excise duty for cigarettes as of July 1 contributed to a little faster price growth for tobacco products. In July, prices of tobacco products was around 6% higher compared to July last year. 

Average price and wage growth trends so far have been pretty favourable to an average consumer. Average annual inflation has been slower than last year while the average gross and net wage growth has been faster. Most likely, similar trends will prevail up until the end of the year. Consequently, the average purchasing power could climb at the fastest pace in the past four years.

For more information please contact Ms. Linda Vildava, +371 67444213, linda.vildava@swedbank.lv 

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